How Bloated Is the Fed’s Balance Sheet?

While the Fed may have raised its target federal funds rate today, it continues to add to its already-bloated balance sheet.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

At $4.5 trillion, the Fed’s balance sheet is equivalent to about 27% of US GDP, over one quarter of the entire economic output of the United States. But it’s one thing to say that and read about it and another thing to put it into perspective.

According to CNBC, the Fed’s balance sheet is large enough that it could purchase the 14 largest companies listed on the S&P 500 index.* Those are: Microsoft, Google, Apple, JP Morgan Chase, Wells Fargo, Johnson & Johnson, Berkshire Hathaway, AT&T, Procter & Gamble, Amazon, Pfizer, Facebook, GE, and Exxon Mobil. That’s how much money the Fed has created to purchase the assets on its balance sheet.

Another way of looking at it is to view this infographic from Demonocracy. The image shows the Fed’s balance sheet when it was at $4 trillion. At the back you can see the Federal Reserve’s Eccles Building and the Statue of Liberty. Five American football fields are on the right side. And the tractor trailer at the front is loaded with $1.4 billion.

4 Trillion Dollars

As you can see, $4 trillion dollars is a lot of money. Each one of those 10×10 squares of pallets is $10 billion. Fifty more of those have been added to the Fed’s balance sheet since that infographic was created. How many more will be created before the Fed’s accommodative monetary policy is finally reined in?

Images: CNBC, Demonocracy

*To split hairs, this isn’t technically true, as an attempt to purchase all the outstanding stock of a company would most likely result in a rise in the stock price as others race to buy up the stock in anticipation of a buyout.